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The Indefensible Defense

By Ty Childress
March 28, 2013

Generally, an insurer has three options when a claim is tendered for defense. An insurer may deny any obligation to defend, agree to fully defend without reservation, or agree to defend while reserving rights to deny coverage later. Policyholders need to consider a whole host of issues when an insurer agrees to defend under a reservation of rights including, but not limited to, who controls selection of underlying defense counsel, rates to be paid to that counsel, privilege issues associated with underlying counsel communications, and potential conflicts between the policyholder's and the insurer's interests.

One source of increasing disputes between policyholders and their insurers is the increasing attempted use of so-called “litigation management guidelines” by insurers in addressing their defense obligations. Contrary to what insurers often claim, these types of guidelines generally do not have any binding legal effect. Policyholders should consider carefully how to respond to an insurer's attempt to impose such guidelines.

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